About AMA

Kusum L. Ailawadi, Karen Gedenk, Christian Lutzky, and Scott A. Neslin

Executive Summary
Consumer stockpiling is a fundamental consequence of sales promotion. Whether manufacturers should view this positively or negatively depends on what consumers do after stockpiling. If the extra inventory encourages more consumption, it is a benefit. It is also a benefit if it preempts future purchases of competing brands by taking consumers "out of the market." However, it is a cost if it merely accelerates purchases by loyal consumers because manufacturer profit margin is often lower in the promotion period. Finally, stockpiling could induce either a positive or a negative impact on repeat purchasing, depending on whether the additional usage of the brand between purchase occasions breeds familiarity and liking or generates boredom and the desire to try something new.

This article measures the consumption, loyal acceleration, preemptive switching, and repeat purchasing effects of promotion-induced stockpiling. The authors extend previous models of purchase frequency, quantity, and brand choice by considering in the brand choice equation the degree to which the household stockpiled on the previous purchase. They use the estimated model to simulate the promotion "bump" induced by a promotion. They then decompose the bump into units attributable to extra consumption, preemptive switching, loyal acceleration, and current-period switching. They also quantify the increase or decrease in repeat purchasing that follows, as well as any additional consumption effects.

In the yogurt category, the authors find that increased consumption accounts for 49%–65% of the promotion bump, depending on the brand. Preemptive switching and loyal acceleration each account for 3%–6%. They find a positive repeat purchase effect that is relatively low in magnitude (2%–3% of the promotion bump) but economically important because these sales occur at full margin. In the ketchup category, the results are similar, though consumption is less important and pre-emptive switching and loyal acceleration are more important. Consumption amounts to 30%–58% of the bump, preemptive switching amounts to 7%–14%, and loyal acceleration amounts to 3%–16%. The repeat purchase effect is smaller (approximately 1% of the bump) but still positive.

The authors' results support a positive manufacturer viewpoint of promotion-induced stockpiling. It induces loyal acceleration, but the benefits of increased consumption, preemptive switching, and extra repeat purchases more than compensate. Therefore, manufacturers should not necessarily recoil when retailers peg a "stock-up-and-save" sign on their promoted brand. However, this does not mean that manufacturers should increase promotions and overly encourage consumer stockpiling. Competition may react to the preemptive switching, and loyal consumers may learn to stockpile disproportionately, thus increasing loyal acceleration.

Possibly the most promising finding in the study is the positive repeat purchase effect. Although promotion purchases are not as "healthy" as nonpromotion purchases in increasing future purchases, the situation considerably improves when the consumer stockpiles. The authors suggest that manufacturers should ensure that their packaging contains clear, positive product messages to reinforce and even enhance the positive repeat purchase effect.

In summary, this work shows that promotion-induced stockpiling produces a rich combination of consumption, preemptive switching, loyal acceleration, and repeat purchase effects that can have important implications for promotion strategy and the profitability of promotions.

Biography
Kusum L. Ailawadi is Charles Jordan 1911TU'12 Professor of Marketing in the Tuck School of Business at Dartmouth College. She received her BSc and MBA from Delhi University and the Indian Institute of Management, respectively, and her PhD from the University of Virginia. Kusum's current research focuses on the impact of marketing spending decisions on category and brand performance and on the strategic interaction and balance of power between manufacturers and retailers. Her work has been published in journals such as Journal of Marketing, Journal of Marketing Research, Marketing Science, Sloan Management Review, International Journal of Research in Marketing, and Journal of Retailing. Kusum and her coauthors have won the Journal of Retailing William Davidson Award, the Journal of Marketing Harold Maynard Award, and the ISMS John D.C. Little Award. She serves on the editorial review boards of Journal of Marketing, Journal of Retailing, Marketing Science, and Review of Marketing Science.

Karen Gedenk is Professor of Marketing at the University of Cologne, Germany. She received her Diploma in Business Administration from the WHU Graduate School of Management in Koblenz, Germany, and her PhD and Habilitation from the University of Kiel, Germany. From 2000 to 2004, she was Professor of Marketing at the Goethe University in Frankfurt/Main. During her career Professor Gedenk has visited the Ecole Supérieure de Commerce de Lyon, Northwestern University, and the Tuck School of Business at Dartmouth. Karen's main areas of research are sales promotions, pricing, marketing research, and trade fair management. Her work has been published in journals such as Journal of Marketing Research, Journal of Marketing, International Journal of Research in Marketing, and Journal of Retailing.

Christian Lutzky is a doctoral student at the University of Cologne, Germany. He received his Diploma in Business Administration from the Goethe University in Frankfurt/Main, Germany, and participated in a one-year exchange program with the University of Southampton. During his PhD program, Christian spent several months as a visiting research scholar in the Tuck School of Business at Dartmouth College. His research interest is in the evaluation of sales promotion success with a focus on response dynamics. Christian has also done research on using Web log files for marketing decisions.

Scott A. Neslin is Albert Wesley Frey Professor of Marketing in the Tuck School of Business at Dartmouth College. He received his PhD in Management from the Sloan School of Management at the Massachusetts Institute of Technology. His research interests include sales promotion, market response models, and database marketing. He has published articles on these topics in journals such as Marketing Science, Journal of Marketing Research, Management Science, and Journal of Marketing. He is coauthor (with Professor Robert C. Blattberg) of the book Sales Promotion: Concepts, Methods, and Strategies (Prentice –Hall) and, more recently, author of the monograph Sales Promotion (Marketing Science Institute). He is an area editor for Marketing Science and is on the editorial boards of Journal of Marketing Research, Journal of Marketing, and Marketing Letters.